1. Cross-Reference To Related Applications
This application claims the benefit of priority from Indian Patent Application No. 839/MUM/2008, filed on Apr. 11, 2008, entitled System For Optimizing Trade Promotion And Distribution Spending In Fragmented Markets, and is hereby incorporated by reference in its entirety
2. Technical Field
This disclosure relates to data processing systems for optimizing marketing spending to obtain a maximum marketing return-on-investment. In particular, this disclosure relates to computer systems and algorithms for analyzing and optimizing trade promotion and distribution expenditures in fragmented markets in order to maximize profits.
3. Background
Due to changes in both market conditions and technology, traditional, brand-oriented advertising is no longer the primary driver of customer behavior. This may be reflected by dwindling print newspaper circulation and market stagnation for network television commercials. Although “above-the-line” (ATL) marketing techniques, which focus on reaching a broad population, are still important, “below-the-line” (BTL) marketing techniques, which focus on targeted, customer-oriented communications, have become increasingly important.
ATL or traditional marketing approaches are directed to a mass audience with messages that attempt to reinforce a particular brand, communicate general product information, or seek to elicit an emotional response. ATL marketing approaches include television, radio, Internet advertising, print advertising, outdoor advertising, Yellow Pages advertising, and agency costs.
In contrast, BTL approaches are more aligned with traditional direct marketing efforts, which attempt to provide targeted relationships between marketers and individual consumers. The effectiveness of BTL approaches is easier to measure and quantify than ATL approaches. BTL marketing approaches include direct mail, direct response broadcast, direct response print advertising, event marketing, interactive marketing, and consumer and trade promotional marketing. Factors that may be responsible for the shift from ATL to BTL approaches with respect to marketing effectiveness (profit) include changing consumer demographics, increased consumer sophistication, widespread marketing “clutter,” enhanced availability of information, increased client pressure to deliver measurable value, growing effectiveness of “multi-channel” campaigns, and technological advances.
However, BTL marketing approaches are difficult to deploy, optimize, and effectively quantify in fragmented markets. For example, emerging markets, such as India, China, Brazil, and Vietnam, are often fragmented. Fragmented markets are characterized by a large number of channel partners, trade intermediaries, and retailers, which form a multi-tier network structure. For example, it is estimated that about 95% of India's retail market is fragmented. Unlike developed markets where suppliers deal directly with a few large retailers, fragmented markets have multi-tier distribution and front-end structure, which render BTL marketing approaches difficult to optimize and evaluate. Similarly, trade promotion and distribution spending are difficult to deploy, optimize, and effectively quantify in fragmented markets.
A large consumer packaged goods (CPG) entity with revenue in the $300 Million range, which may be typical of a large CPG entity in India's fragmented market, may have a complex, multi-tiered distribution network. It is not unusual for such a large CPG entity in a fragmented market to have about 25-30 warehouses, about 1,500-2,000 distributors or stockists depending on the size and presence of the manufacturer, about 10,000-15,000 wholesalers or intermediaries, and about 2-12 million retailers. Entities with which the manufacturer has a relationship, whether direct or indirect, may be referred to as “channel partners.” Markets having about at least 1 million selling entities or channel partners may be considered to be fragmented.
The warehouses, also referred to as carrying and forwarding agents or CFAs, may act as a direct link between the manufacturer and the trade and further serve as the representative of the company who holds the stock (inventory) on behalf of the company. The objective of the CFA is to ensure continuous supply to distributors or “stockists” and to direct retailers. The CFA typically receives a margin of about 2% to about 4% depending on the volume of business handled.
The distributors or stockists are an important link in the distribution network structure because they purchase stock (inventory) from the manufacturer, invest in redistribution infrastructure (sales force, trucks, vans, etc.), and proactively service retailers and wholesalers to meet sales and distribution goals of the manufacturer. Stockists typically receive about 5% to about 6% of the retailer's sales price.
The wholesalers act as an intermediary between the stockist and the retailer, and help extend the coverage of a product by selling to retailers. The retailer is the last point of contact between the network and the end consumer. Retailers typically receive about a 10% to about 15% profit margin on most products.
Accordingly, it is difficult to optimize trade promotion and distribution marketing techniques and/or expenditures (“spends”) so as to maximize the manufacturer's profit in such fragmented markets where data from disparate platforms and channel partners is not organized, and may not even be linked across computing platforms. Further, due to the disparate platforms it is very difficult if not impossible to obtain cohesive information regarding sales and performance based on data provided by the various channel partners. Also, the large volume of data from between 2 million to 12 million retailers in a fragmented market compounds the difficulties of memory allocation and data processing efficiency when using conventional optimization algorithms.